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CHAPTER TWO: LITERATURE REVIEW Introduction This chapter is aimed at giving the reader insight on pertinent concepts with both the theoretical

and empirical reviews of the factors influencing the adoption of internet banking in Zimbabwe.

The literature review seeks to identify relationships between ideas and practices from different

authors. The benefits and concerns for the bank and customers are clearly outlined; together with

a customer analysis to map out strategies that can be offered or are already inherent in internet

banking .A summary is also provided at the end of the chapter.

2.1 An Overview of Internet Banking Internet banking is defined as an ‘‘internet portal, through which customers can use different

kinds of banking services ranging from bill payment to making investments’’, Pikkarainen

(2004). To the researcher it refers to systems that enable banks customers to access their

accounts and obtain general information on bank products and services. This is through the use

of a banks websites from any location worldwide, without the intervention or inconvenience of

sending letters, faxes, original signatures and telephone confirmations.

Internet banking is viewed as a process innovation whereby customers handle their own banking

transactions without visiting bank tellers, Wang (2005). This process thus represents a paradigm

shift in that it enables new channels and new ways to collaborate and communicate information.

‘‘Each Internet banking and bill payment transaction represents an opportunity, repeated over

and over each day for financial institutions to construct in-depth profiles of individual

consumers, build stronger, more extensive relationships and increase their profitability’’, Online

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Resource (2007). Examples of some of the well-known and successful internet banks and

internet branches globally include:

The world’s first Internet only bank is Security First Network Bank, now owned by

Royal Bank of Canada, which currently has over 150,000 customers.

The first profitable e-bank is NetBank that currently boasts $1.5 billion in assets with

more than 110,000 accounts, Rombel (2000).

Telebank, which was started over 10 years ago as a virtual Savings and Loan institution

and was acquired by E-Trade in 1999, began offering Internet transactions in 1998 and

now has over 51,000 customers with over $1 billion in deposits.

Wingspan.com, a wholly owned independent subsidiary of Bank One was launched in

June 1999, Wingspan makes referrals to mortgage companies and has alliances with

insurance companies to offer various plans to customers. Wingspan.com offers clients

tangible evidence that traditional banks recognize the extreme importance of entering into

the e-banking business , Hoffman (1999)

The services available for Internet banking vary from bank to bank. According to Wang (2005)

virtually all banks that offer Internet banking services allow consumers to check the balances in

their accounts, transfer funds and order electronic bill payments. The even more sophisticated

Internet banking systems allowing customers to apply for loans, trade stocks or mutual funds,

and even view actual images of their checks or deposit slips. Table 2 below indicates the various

types of internet banking service provided by Zimbabwean Banks.

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Table 2.Internet Banking Services provided by Zimbabwean Banks Bank Services

CBZ RTGS, real time online processing, bill payment,

intra account transfer, multiple account management.

Kingdom Balance inquiry, print statement (upto 6 months),

confirm payments, fund transfer, bill payments,

RTGS, air time top up.

ZB bank View account, bill payment, funds transfer, order,

RTGS, intra account transfer.

FBC View account, view statements

(upto 6 months), RTGS, bill payments, intra account

transfer, money transfer, modify beneficiaries, order

cheque book.

CABS Bill payments, view statements, money transfer, pay

salaries, view account, airtime top up

Interfin Cybercash, DStv payments, RTGS, balance enquiries,

mini statements air time purchase, bill payment, fund

transfer

NMB RTGS, view account, intra account transfer, bill

payment, order cheque book, fund transfer

Source: Electronic banking Special Issues, January 2011

Not only has the Internet demanded customers to change their habits and even to learn new

skills, it has also become a major challenge to banks themselves. The amount and scale of

products and services offered online has grown continuously, basically providing something to

everyone. The internet has also changed the nature of competition among companies providing

banking and investment services. Those having more traditional look on the business are forced

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to change their view towards the markets. This means taking more proactive approach to

providing Internet and mobile services.

Henry (2000) identified three functional levels or kinds of internet banking that are currently

employed in the market place and these are the Informational, Communicative and Transactional

websites as explained below;

i. Informational (Websites) - This has been identified as the first level of internet banking.

Typically the bank has the marketing information about the bank’s products and services

on a stand alone server. The risk is very low as informational systems typically have no

path between the server and the bank’s internal network.

ii. Communicative/Simple transactional (Websites) – This type of internet banking

allows some interaction between the bank’s systems and the customer. The interaction is

limited to e-mail, account inquiry, loan application or static file updates (name and

address). It does not permit any funds transfers.

iii. Advanced Transactional (Websites) - This level of internet banking allows bank

customers to electronically transfer funds to/from their accounts, pay bills and conduct

other banking transaction online like CABS in Zimbabwe.

2.3. Factors Influencing Adoption of Internet Banking

The main objective of the study is to identify the factors that influence internet banking, in the

discussion below;

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2.3.1 Technology experience

Prior technology experience, especially prior computer experience have been found to impact

consumers' beliefs about internet banking systems and information technology ,Igbaria et al

(1995). Au et al. (2000) extended this idea to the observation that the more experience consumer

has about technology, the better able they be to understand new technologies and their

ramifications. Thus, consumer's familiarity with technologies in general facilitates her

appreciation of the potential added value which is inherent in a technology.

Janda (2000) introduce this logic to the system of the Internet by arguing that consumers'

adoption rate of the Internet is associated with their past experiences with the technologies. Non-

users' negative experiences were suggested to have a great impact on their perceptions about the

Internet. This logic is in line with the classic attitude theories of Fishbein and Ajzen (1975), who

claim that the more positive the person's past experience about an object is, the more positive

beliefs he will hold about it. As a result, the positive beliefs create positive perceptions.

Fisher (2000) supports of the above by proposing that the most important reason for adopting

Internet based services is ‘‘each consumer's attitude toward technology itself, ranging from

eagerly accepting to profoundly suspicious’’. A direct consequence of these earlier studies is the

proposition that a negative prior technology experience and especially negative computer

experience, has a negative impact on the adoption of Internet banking, and vice versa.

2.3.2 Personal banking experience

Consumer behavior research has also studied the relationship between a person's experiences

onto her behavior. In general, beliefs and attitudes are largely the result of personal experiences

about a given object, Peter (1990). This supports the fact that satisfied bank customers have more

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positive perceptions about Internet banking and, thus, are more likely to move online. A

dissatisfied branch office customer may try Internet banking, but only a satisfied customers adopt

Internet banking as their regular bill payment mode.

Sheshunoff (2000) goes on to state that the single most important driving force behind the

implementation of full service Internet banking by banks is the need to create powerful barriers

to customers exiting. He argues that once a customer moves to full service Internet Banking, the

likely hood of that customer moving to another financial institution is significantly diminished.

The main reason for this behaviour can be found in the consumer behaviour theory which states

that switching always requires much time and effort from the individual customer. He concluded

that the competitive advantage of Internet banking for banks is very significant.

2.3.2 Lack of Trust in Bank Services

Stewart (1999) claimed that the failure of the Internet in retail banking is largely attributable due

to the lack of trust consumers have in the electronic channels. In fact, although almost ten years

have elapsed since Stewart (1999) made this claim on lack of trust, In Zimbabwe it is largely

clear to a greater extent that most customers still lack trust on the Internet banking system. Those

who usually use Internet banking claim that at times they doubt the security aspects of the system

but due to its convenience, they still use it. Therefore even if in the current days Internet banking

is a success, the lack of trust is still an important aspect.

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2.3.3 Reference group influence

Reference groups, such as a social reference group impact a person's behavior. The consumption

of banking services may be influenced by several reference groups of the customer such as the

personnel of the bank and traditional ones such as friends and family, Ajzen (1975). Two

competing influences have been identified on the relationship between subjective norm and

behavior: conformity and dissension, Nowlis (2000). Conformity is the result of people trying to

conform to a subjective norm, thereby avoiding criticism and rejection.

Dissension measures consumer's independence of the subjective norm, and is a reflection of

strong self-respect and autonomy. A dissenting consumer is thus an individual, unique, special,

and separable from the masses, Snyder, 1992). The central role of the subjective norm in

consumers' behavior has been verified from several angles. Bagozzi (2000) has shown that when

the subjective norm is measured by social factors and focus, it is a strong determinant of

consumer behavior. On the other hand, Taylor (1991) argues that most people try to surround

themselves with people and things that are consistent with their own identities.

2.3.4 Bank Staff Attitude

Bank staff perception and expectations towards banking technologies are a crucial element in the

development of successful e-banking implementation projects, Chaniotakis (2004). If bank staffs

primarily consider e-banking as a self-service and convenient channel that decrease costs and if

its adoption will not affect their positions, then they will adopt it, Nath et al (2001). However, if

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they perceive e-banking as a threat to their job prospects and a way to lose customers, then they

will be likely to resist its adoption to keep customers in the branches and their jobs, Mols (2001).

Bank staff resistance to technology adoption is a common problem in the banking sector. Davis

et al (1989) argue that the introduction of new technology is bound to cause a disturbance within

organizations and to individuals within those organizations as older technologies and systems are

displaced by new ones. Davis et al. (1989) also state that the successful adoption of any new

technology is principally determined by organizational users’ attitudes. Employees and managers

build up an attitude and feeling about the new technology and that feeling could direct them to

the adoption or rejection of the proposed technology. Attitude can be a very powerful enabler or

a barrier towards the adoption of the new technology. Ajzen (2001) defines the term ‘attitude’ as

a complex conundrum of feelings, desires and fears that create a state of readiness to act within a

person.

2.3.5 Security challenges

One of the most significant challenges of Internet banking has been consumers' security concerns

about Internet banking. Security has been identified as one of the biggest barriers for the uptake

of Internet banking, Sathye (1999). Dube (2009) study points out that Zimbabwe Internet

banking customers do pay excessive attention to security concerns as there is no regulatory

framework for the Internet banking yet the services has been introduced for a number of years

now.

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2.3.6 Demographics

The effect of demographics has been found to be very a significant determinant of behavior in

various studies concerning electronic banking. High income, relatively young age, and good

education have been found explaining the acceptance of Internet banking. In addition, a typical

Internet banking user has been identified as a high involvement person belonging to the upper

middle class or in parts as a member of the career-orientated upper middle class, Jayawardhena

(2000).

The technology acceptance literature points a strong relationship between age and the acceptance

of new technologies, Harrison et al (1992). Older consumers are found to have problems with

new technologies, and hence, are expected to have negative attitudes toward innovations. Janda

(2000), for instance, indicate that many older consumers possess more negative intention to

change. However, they argue that person's overall perception of technology affects more than the

age.

Gender has also been suggested as a factor of Internet banking adoption. Some studies argue that

the Internet is male dominated .For example in Finland the prior research counts that 45 percent

of the Internet users are female, Statistics Finland (2000). Thus it is important that this study are

investigates whether demographic variables such as age, education, profession, and household

income have an influence on Internet banking usage.

2.3.7 Bank to Customer Relationship

The type of relationship customers wishes to maintain, and this differ, with banks is another

aspect to consider. Indeed there is evidence to suggest that in the choice of communication the

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channel will affect on the development of relationships. In the debate on the degree to which face

to face communication and inter-personal relationships is more efficient than behind-the-curtain

services, there exist a number of studies in literature to significantly conclude that indeed

proximity and personal relations do matter, Sathye (1999).

This implies that customers desiring social and psychological benefits by establishing personal

relationships with banks will prefer face to face interactions, at the detriment of internet banking.

Tomiuk (2001) concurred with the above view and stated that the lesser degree of ‘richness’ and

‘sound presence’ of e-banking environment will affect banks’ ability to create a trusting

relationship between their customers and employees. On the other hand, for those customers

whose relationship is primarily based in efficiency of services, e-banking will be an attractive

alternative, (Journal of Internet Business Issue 2008).

2.3.8 Security

Uncertainty and risk are inherent in services were contracts and warranties are often absent ,

Daniel (1999).In the Internet banking environment, remote users in all corners of the world are

allowed to access critical files of computers and information transferred via the internet. Internet

Banking is therefore inherently risky from the view point of security. Moreover, Internet

Banking is highly uncertain because the parties involved in a transaction are not found in the

same place, Clarke (1997).Customers cannot for example observe a bank tellers behaviour

directly and so cannot depend on things like physical proximity, handshakes and body signals of

the teller because of the importance of trust required when using the internet hence, customers

trust is a major factor influencing the growth of internet banking.

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Gupta (1995) in his study claimed that product information content on the web design and layout

are also important factors that affect customer satisfaction (2003) further argued ‘‘that proper

navigational attributes and search facilities, leading to higher level of interactivity will have an

impact on the customer perception on user friendliness of the e-banking site’’. Mattila (2005)

also claimed that security has been widely recognized as one of the main barriers to the adoption

of internet innovation following empirical work on Finnish banking customers’ survey responses

including both internet users and non-user.

2.3.9 Other Factors

Howcroft et al (2002) found that the most important factors encouraging consumers to use

internet banking are lower fees followed by reducing paper work and human error, which

subsequently minimize disputes, Kiang et al (2000). Byers (2001) concluded that it was changing

consumer attitudes rather than bank cost structures that determine the changes in distribution

channels. Byers further added that virtual banks can only be profitable when the segment that

prefers electronic media is approximately twice the size of the segment preferring traditional

banks.

Convenience of conducting banking outside the branch official opening hours has been found

significant in cases of influencing adoption. Banks provide customers convenient, inexpensive

access to the bank twenty-four hours a day and seven days a week. Moutinho et al (1997) pointed

out that each transaction conducted through the internet could carry out a similar routine or

transactions as do human tellers in branch offices, but at half the cost and with a four-to-one

advantage in productivity.

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However, not all bank customers engage in the use on internet banking services. There are

multiple reasons for this. First, customers need to have an access to the Internet in order to utilize

some e-Banking facilities such as Internet and Mobile banking facilities. Furthermore, most new

online users need first to learn how to use the service. Second, nonusers often complain that

online banking is incomprehensible, difficult to use and has no social dimension which is the

lack of face-to-face situation at traditional branch, Karjaluoto (2001). Thirdly customers are

afraid of security issues that come with using the internet, Ezeoha (2005).

There are also several other theories relating to factors influencing technology adoption

explained below. Such theories explain the rate of adoption and degree of acceptance of the use

of internet banking. These are The Theory of planned behaviour developed by Ajzen (1985) as

well as the diffusion of innovations theory developed by Rogers (1983) and was developed from

a decomposed theory of planned behaviour and was introduced by Taylor and Todd (1995).

2.4 Theory of Planned Behaviour

The decomposed theory of planned behaviour provides a comprehensive way of understanding

factors that can influence a person’s decision to use information technology. It postulates

intention to adopt information technology is determined by:

Attitude (which describes a person’s perception towards information technology)

Subjective norms (which describes the social influence that may affect a person’s

intention to use information technology)

Perceived behavioural control (which describes the beliefs about having the necessary

resources and opportunities to adopt information technology).

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Intention according to Ajzen (1985) is the immediate determinant of to perform behaviour. Thus

intention to use a specific information technology can be seen as a determinant of actual usage of

that information technology. It was therefore decided to measure intentions rather than actual

usage of Internet banking as this factor is more relevant when considering the adoption process.

The decomposed framework has been designed by Tan and Teo (2000) in order to specifically

examine the factors affecting Internet Banking as the information technology of interest.

Intention to adopt Internet banking was considered as the dependant variable whilst Attitude,

Subjective norms and Perceived behavioural controls were considered to be independent

variables. Figure 1 below displays the framework.

Figure 1: Framework for the Adoption of Internet Banking

Source; Tao and Teo (2000)

Attitude Relative Advantage

Compatibility -Values -Internet Experience - Banking Needs

Complexity

Trialability Risk

Intention to Use Internet Banking Services

Usage of Internet Banking Services

Subjective norms

Perceived Behavioural Control

Self – efficacy Facilitating Conditions

-Availability of government support -Availability of Technical

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Taylor and Todd (1995) in their Decomposed Theory of Planned Behaviour indicated that a

better understanding of the relationships between the belief structures and antecedent of intention

requires the decomposition of attitudinal beliefs. Kavas (1984) argued that the cognitive

components of belief could not be organized into a single conceptual or cognitive unit. Taylor

and Todd (1995) also specified that based on the diffusion of innovation theory, the altitudinal

belief has three important characteristics of an innovation that influence adoption are relative

advantage, complexity and compatibility, Rogers (1983).

Taylor and Todd (1995) showed that the Decomposed model of the Theory of Planned

Behaviour has better explanatory power than the pure Theory of Planned Behaviour. So the

argument of the empirical study is that internet banking is a technological innovation and thus

the decomposed Theory of Planned Behavior Model gives a more satisfactory explanation of the

adoption of Internet Banking.

According to the figure 2.2 above:

1. Relative advantage - refers to the degree to which an innovation provides benefits which

supersede the previous ones and may incorporate factors such as economic benefits,

image, enhancement, convenience and satisfaction, Rogers (1983).Relative advantage

should be positively related to an innovation’s rate of adoption, Tan and Teo (2000).

2. Complexity – Represents the degree to which an innovation is perceived to be difficult to

understand, learn or operate .Rogers(1983).It is also defined as ‘‘the degree to which an

innovation is perceived as relatively difficult to understand and use’’. Innovative

technologies that are perceived to be easier to use and less complex have a higher

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possibility of acceptance and use by potential users. Thus, complexity would be expected

to have a negative relationship to attitude .Complexity (and its ease of use) has been

found to be an important factor in the technology adoption decision, Davis et al (1989).

3. Compatibility – Is the degree to which the innovation fits with the potential adopter’s

existing values, previous experience and current needs. Klein (1982) found that an

innovation is likely to be adopted when it is compatible with the job responsibilities and

value system of the individual. Therefore it may be expected that compatibility relates

positively to adoption.

As of the structure of subjective norms, some studies have found support for the decomposition

of normative belief structures as stated in the study of Kavas (1984) the results indicated failure

to identify a multi dimensional structure. Hence, Taylor and Todd (1995) in their research

indicated the need to provide additional insight into the decomposition of the subjective norm.

In addition, according to Ajzen (1991), Perceived Behavioural Control (PBC) reflects belief

regarding access to the resources and opportunities needed to affect a behaviour.PBC appears to

encompass two components. ‘‘facilitating conditions’’, Trandis (1979), which reflect the

availability of resources needed to perform a particular behaviour. This might include access to

the time, money and other specialized resources, therefore supporting of technological

infrastructure become easily and readily available through internet banking and applications such

as banking services will also become more feasible. Accordingly, the government can play an

intervention and leadership role in the diffusion of innovation.

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The second component is self – efficacy, Ajzen (1991) states that is a condition of being

confident of the ability to behave successfully in an innovation process, Bandum (1982).As a

result an individual with the self- assured skill to use a computer and the internet is more inclined

to adopt internet banking.

User’s attitude towards and acceptance of a new information system is important on successful

adoption of the information system, Davis (1989). The quality and effectiveness of a system can

only be validated with its level of users’ acceptance. A system that satisfies users’ needs boosts

satisfaction with the system and is an indicator of the system’s success Pikkarainen et al (2004).

To improve the delivery of efficient and effective system by designers and developers, it is

important to study the reasons why people decide to use or not to use an information system.

2.4.1Technology Acceptance Model (TAM)

Technology Acceptance Model (TAM) is an information system theory that models how users

come to accept and use a technology. TAM proposed by Davis (1989) is an extension of Theory

of the Theory of Planned Behaviour (TPB). The Technology Acceptance Model explained the

relationship between beliefs (perceived usefulness and perceived ease of an information system)

and users’ attitude, intentions, and actual usage of the system. The TAM posits these two

theoretical constructs; perceived usefulness (PU) and perceived ease of use (PEOU) as

fundamental determinants of user’s acceptance of an information system.

The key purpose of TAM is to provide a basis for tracing the impact of external factors on

internal beliefs, attitudes and intention.TAM was formulated in an attempt to achieve these goals

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by identifying a small number of fundamental variables suggested by previous research dealing

with the cognitive and affective determinants of computer acceptance and using Theory of

Reasoned Action as a theoretical backdrop for modeling the theoretical relationships among

these variables.

As figure 2 below shows TAM states that there are two main particular beliefs used in this theory

which are, perceived usefulness (PU) and the perceived ease of use (PEOU). The main primary

relevance for computer acceptance behaviour is PU which is defined as the degree to which a

prospective user believes that using a particular system would enhance job performance. This

follows from the definition of the word ‘‘useful’’ which means capable of being used

advantageously within an organizational context. People are generally reinforced for good

performance by raises in salaries. promotions, bonuses and other rewards, Pfeiffer (1982).A

system high in perceived usefulness is selected as most ideal in turn is one for which a user

believes in the existence of a positive use- performance relationship.

PEOU refers to the degree to which a perspective user believes that using a particular system

would be free of a lot of effort. This follows from the definition of ‘‘ease’’, meaning freedom

from difficulty or great effort. Effort is defined as a finite resource that a person may allocate to

the various activities for which he or she is responsible. All else being equal an application is

perceived to be easier to use than another which can be more likely to be accepted by users. In

the past decade, TAM has become well established as a robust, powerful and much simpler

model for predicting user acceptance of innovations.

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Figure 2: Technology Acceptance Model

Source: Davis (1989) 2.4.2 Comparison of Theory of Planned Behaviour and Technology Acceptance Model

Although the Theory of Planned behaviour (TBM) and Technology Acceptance Model (TAM)

focus on different determinants to explain the consumer behaviour in technology adoption, these

theories share some similarities .Firstly TAM assume an similar attitude to the intention

behaviour relationship that is, cognitive and normative or affective of beliefs which forms

attitude, this consecutively has a influence on the behavioural intention and actual usage of

behaviour.

Secondly, the perceived usefulness in the TAM is similar to relative advantage and to a certain

extent results in perceived consequences. These constructs of relative advantage and perceived

consequences in various models further justify the beliefs about the consequences of the

behaviour are the keys to the formulation of attitude towards the behaviour. Thirdly, the

External Variables

Perceived Usefulness

Perceived Ease of Use

Attitude toward Using

Behavioral Intention to

Use

Actual System

Use

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construct of perceived behaviour in the TPB refers to one’s perception of whether behaviour is

under one’s control or whether one has access to resources and opportunities required to

facilitate behaviour, Ajzen (1991).

Many studies have been conducted using TAM have introduced other variables which are

validated as having impact on usefulness, ease of use, attitude, users’ acceptance and intention,

Pikkarainen et al (2004). Davis cited that future research on technology acceptance should

address the impact of other variables on usefulness, ease of use and user acceptance and

intention. Validity of TAM can be increased by exploring the nature and specific influences of

technological and usage-context factors that may affect user’s acceptance.

An example of such research is Hanudin (2007).The author concluded that credibility is the

heart of Internet banking system and found computer self-efficacy as a major influence on

perceived ease of use. In the context of electronic banking, Muniruddeen (2007) employed the

extended TAM to examine individual’s perceived security and privacy of Internet banking in

Malaysia. Siu-Cheung (2004) also extended the model with Subjective Norm and Social

Cognitive Theory (self-efficacy) by Bandura (1982) to explain the intention to use Internet

banking in Hong Kong. Begum (2008) also employed the extended TAM with attitude as defined

by Theory of Reasoned Action to determine the customer adaptation of e-Banking.

Therefore, perceived ease of use (PEOU) and perceived usefulness (PU) alone may not fully

determine the user’s intention to adopt electronic banking, thus the need to examine additional

factors that may better predict the acceptance of electronic banking. Computer self-efficacy,

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perceived credibility (security and privacy), perceived risk, quality of Internet connection, and

perceived enjoyment among others are external variables that have been introduced into TAM in

extending its validity on examining user’s acceptance of online banking, Internet banking, e-

Commerce and Internet usage.

2.4.3 Diffusion of innovation -Internet banking

The need to understand how and why technology has or has not been adopted for knowledge

work in less-developed countries is important for managers/service providers and customers

alike, Hasan (2005). There is a continuum of approaches for how managers deal with

technological change, Rogers (1983) provides a typical curve for the adoption of any innovation

by businesses and individuals whether it is a new processor, DVD or a new business concept

such as e-business.

On one end of the continuum are early adopters and on the other extreme end are laggards. In the

technologically developed world, information technology is faced by barriers such as the lack of

top management support, poor quality design and inadequately motivated and capable users and

in contrast most of the five hundred million citizens of the Sub-Saharan Africa have no access to

telephone service or computers, Odedra et al (1993) cited that are fundamental elements in

understanding technological change.

Numerous studies have been developed facilitating the adoption of innovation with various

industries, however very few studies have so far been published on the diffusion of internet-

based platforms for the banking, most of them deal with the diffusion of ATMs in the financial

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sector, Corrocher (2002). These studies have identified the main factors that impact on the rate of

diffusion of an innovation and these include achievement of competitive advantage, reducing

costs and protecting a strategic position, Stewart (2003).

Provision of infrastructural facilities is another factor that could lead to quicker diffusion of

innovation. Study from Foley (2000) reveals that there is a significant correlation between the

website downloaded speed and web-users satisfaction. Moreover other features such as content

and design, interactivity, navigation and security are relevant according to the author .Broderick

(2002) found through observations and narrative analysis of internet banking customers, that

problems such as slowness, poor navigational possibilities, poor interactivity and critical

incidents such as lack of help and empathy by internet banking service providers, triggered

considerable switching and negative word of mouth.

Foley (2000) revealed that internet banking is diffusing at a slow pace. It is difficult to establish

up to what point innovation has been a management’s objective and how far it has been

influenced by factors beyond management control. Karem (2003) notes that with internet

banking there should be a management aspect to adopt internet banking with a long term

perspective which is looked upon as an investment not an expense. Sullivan and Wang (2005)

concur that factors such as organizational structure, size of business, number of previous

adopters and entry of new competition to the industry may also affect the uptake of a particular

innovation.

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Supply and demand factors impact on the decision to adopt a new innovation. From the demand

perspective there is some consumer demand for this facility while on the supply side protection

of reputation, competition, cost saving, mass customization, retention and attraction of customers

have been cited as influential factors on the diffusion of internet banking , Bradley (2003). On

the other hand security lack of user-friendly technology, customer demand, high initial set-up

costs, redundancy of existing high-cost legacy systems and lack of suitable skills have been

highlighted as some of the most important issue delaying the adoption or diffusion of internet

banking, Chang (2003).These security issues and others hindering the adoption of internet

banking are explained in the segment below.

2.4 Benefits of Internet Banking To Banks

Cost Savings

Orr (1999) states that electronic processing dramatically reduces the cost charged per each

internet banking transaction. According to DiDio (1998), the average transaction cost at a full

service bank is about $1.07. It reduces to $0.27 at an ATM and falls to about a penny if the same

transaction is conducted on the web. Also, there are opportunities for banks to present customer

bills electronically. The cost of delivering bills electronically is substantially lower than if the

bill was in paper form delivered through the mail. Irvine (1999) states that electronic bill

presentment costs 40% less than paper delivery. These cost savings can offer customers and

banks alike reduced cost of banking and still provide efficient and varied services.

Loyal Customers

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In a recent study conducted by Forrester Research, 61% of respondents claimed that if their

banks offered the financial services they wanted, they would prefer to utilize the bank’s service,

Dixon (1999). With this knowledge of consumer interest in mind, banks are moving to offer a

“hub” of financial services including bill presentment and payment, financial planning, estate

planning, insurance, loans, and brokerage services.

The Internet allows for this convergence of financial services in one previously unavailable

central location. Web sites that offer financial convergence for the customer will create a more

involved banking customer who will more frequently patronize the banking site and more likely

use the services offered. The idea is that by creating a more loyal customer who depends on a

bank for many financial services, more bundling can occur and higher revenue per customer can

be generated.

Offer Additional Services

As mentioned above, many banks are moving towards offering clients a financial portal. This

portal concept offers banks a new role in the business of serving clients. Simply having an

Internet presence does not provide banks a revenue stream. However, by offering a wide array of

products and services, banks can benefit from Internet integration. By creating financial portals

where consumers can manage a broad range of financial activities such as stocks and mortgages,

banks can profit from offering Internet capabilities to clients, Wah (1999).

Internet Profit Generation

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E-commerce, when properly integrated into existing banking operations, can lead to substantial

cost savings and higher profitability. Cost savings occur by virtue of automating customer

transactions such as funds transfers, payments, account balance inquiries, etc. Strategic alliances

with insurance companies, mortgage companies, and stock brokerage firms can lead to additional

business opportunities that otherwise will go unrealized. Furthermore, banks are able to retain

customers more effectively when offering services that are value-added. This has been clearly

demonstrated in the case of Wells Fargo bank. When customers moved online with Wells Fargo,

the percentage of customers taking their business elsewhere dropped 50 percent. As a result of

these positive experiences with online banking, one in six of the bank’s new customers are

referrals from existing customers and, thus, did not cost the bank anything to acquire them

Meckbach (1999).

High-Profit Customers

Some studies suggest that the demographics of Internet banking customers are enticing. At

Wells Fargo bank, online customers have an annual average income of $75,000 with education

levels higher than the average Wells Fargo customer, Hoffman (1999). Also, this very group of

customers is more profitable than the bricks-and-mortar counterparts. They generate 50% more

revenue than the average Wells Fargo customer; hold 20% higher balances; use 50% more

products, and their attrition rate is 50% of the overall attrition rate. Furthermore, on average, it

costs 14% less to service these customers as compared to bricks-and-mortar customers, Timewell

(1999).

2.5.2 Benefits of Internet Banking To Consumers

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Cost Savings

Cyberspace is cheaper to operate in than bricks-and-mortar structure and this cost benefit is often

passed along to consumers. The Internet banking cost structure allows consumers to receive cost

savings and financial benefits for banking online. A comparison of Wingspan.com (an e-bank)

with Bank One (Wingspan.com’s parent bank a bricks-and-mortar bank) offers an illustration of

this point. For checking accounts, Wingspan offers an interest rate of 4.5% interest compared to

Bank One’s 1%. Also, Wingspan.com offers more choices in the mortgage and insurance fields,

with 60 lending companies and 15 insurance vendors. Wingspan.com also offers customers an

advantage over its parent in the area of electronic bill payment, offering the service for no extra

cost, while Bank One charges $4.95 per month, Osterland (1999).

Access to Additional Services

Basic transactional web sites allow customers to review account balances, holdings and recent

banking statements. Systems that allow customers to initiate transactions online, such as

transferring money between accounts or making payments, provide additional advantages to the

customer. These enhanced web sites enable customers to pay bills, apply for and review loans

and mortgages, and check credit card bills. The financial institutions that offer expanded services

online are well positioned to be market leaders, Hickman (1999).

By offering this large umbrella of service from one trusted banking institution, these firms will

be able to garner a greater share of a customer’s financial business. Customers will benefit by

having a wider selection of services available from one trusted institution. Using the Internet,

financial information from a bank can be linked to account information stored in a program such

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as Quicken, QuickBooks, or Microsoft Money on a home computer Fysh (1999). These features

improve “stickiness “of customers leading to a lower attrition rate.

2.5.3 Concerns with Internet Banking

Security and Privacy

Security of Internet transactions is of paramount concern to most customers particularly where

financial information is involved, Stafford (2001). Banks must convince their customers that

their websites are secure and sufficient safeguards have been taken to assure security at the

transaction level. Also, safeguarding the privacy of customer’s financial information and profiles

are imperative if the public is to embrace Internet banking.

The Office of the Comptroller of the Currency (OCC) released a new handbook outlining

procedures for examining banking activities at national banks, ABA Bank Compliance (1999).

Issues in the handbook include customer privacy, threat of intrusions from hackers, and issues

surrounding the interrelationship of customer anonymity on the Internet and banks’

responsibility to monitor suspicious activities under the Bank Secrecy Act.

Additionally, a report by the General Accounting Office (GAO) revealed 81 bank examinations

by the FDIC, Fed, OCC and OTS and found that 36 banks (44%) had not fully adopted Web

banking risk measures proposed by regulators, TMA Journal (1999). These security measures

include inadequate agreements with third party vendors, insufficient strategic planning, and

incomplete audit procedures for the online banking system. The highly developed and

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sophisticated encryption technology that is available today points to a lack of clearly defined

security policies in place, rather than an overall technological issue concerning security. By

implementing the available security technology in the appropriate manner, the safety and

security of an Internet bank should not pose a severe risk to the accounts of individuals.

Users Discontinue Service

A recent study found that almost a third of the 9.4 million people who signed up for internet

banking (including through the Internet and dial-up accounts) discontinued their service for a

variety of reasons, Redman (1999): online banking was too time consuming (27%); unhappy

with customer service (25%); no need or interest in the service (20%); too costly (11%), and

concern for privacy (5%). This study also noted that only 35% of those who discontinued the

service said that they would try online banking again in the future, Cyber Dialogue (1999).

Such negative findings about online banking contrast greatly with studies dealing with online

trading. Among online traders, only 3% discontinued the service and 85% were satisfied with

online trading, Redman (1999). A lack of knowledge about customer perceptions of what

Internet banking can offer might present some explanation for why over the past years, millions

of Internet banking customers have closed their Internet accounts. Clearly, user satisfaction and

retention must be addressed for Internet banking to become well accepted.

Access to Paper Money

Even with the best the Internet has to offer in banking services, consumers still need to visit an

ATM or a bank branch to withdraw cash. Customers also have to deposit checks by mail,

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through an ATM or by visiting a bank branch (Fysh, 1999). These limitations of Internet banking

bring out some issues that e-banks need to address. ATM’s are currently the most convenient

means of acquiring paper money from an Internet bank and most ATM transactions are assessed

a fee. To overcome this problem, many internet banks reimburse customers for a limited number

of ATM transactions each month. In future, electronic cash could provide a possible solution.

But so far, electronic/digital cash has not been well received by the public.

2.6 Risks Associated with Electronic Banking

Although, electronic banking provides many opportunities for the banks, it is also the case that

the current banking services provided through Internet are limited due to security concerns,

complexity and technological problems, Sathye (1999). Hewer (1999) used the term trust to

describe a measure of risk. Suganthi et al (2001) viewed risk in the context of security concerns

and risk in the context of trust in one’s bank. Finally a number of studies found trust and

perceived risks have a significant positive influence on commitment and ultimately leads towards

overall satisfaction, Nath (2003).

Reputation of a service provider is another important factor affecting trust. Cannon (1997)

defined reputation as the extent to which customers believe a supplier or service provider is

honest and concerned about its customers. Stanley (1999) further argued that banks can build

close and long lasting relationships with customers only if trust, commitment, honesty and

cooperation are developed between them.

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Nancy et al (2001) study found that customers’ complain about computer logon times which are

usually longer than making a telephone call. In addition, respondents felt that they have to check

and recheck the forms filled in online, as they are worried about making mistakes. Frequent slow

response time and delay of service delivery causes customers to be unsure that the transaction

has been completed. Galle (1999) found the disruption of information access to be a common

factor related to unwillingness to use Internet channels for commerce.

Liao (2002) found that individual expectations regarding accuracy, security, transaction speed,

user friendliness, user involvement and convenience are the most important attributes in the

perceived usefulness of Internet-based e-retail banking.

Confidentiality of consumer data is another important concern in the adoption of online banking,

Cunningham (2003). Customers fear that someone will have unlimited access to their personal

financial information. White (2004) conducted a study that focused on why the increase in

Internet users in the UK had not been paralleled by increases in Internet usage for banking

purposes. Their results showed that customers still have concerns with the security and the safety

aspects of the Internet.

Lack of specific laws to govern Internet banking is another important concern for both the

bankers and the customers. This relates to issues such as unfair and deceptive trade practice by

the supplier and unauthorized access by hackers. Larpsiri et al (2002) argued that it is not clear

whether electronic documents and records are acceptable as sufficient evidence of transactions.

They also pointed out that the jurisdiction of the courts and dispute resolution procedures in the

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case of using the Internet for commercial purposes are important concerns. Disputes can arise

from many sources. For instance, websites are not a branch of the bank. It is difficult for the

court to define the location of the branch and decide whether they have jurisdiction, Speece

(2003). Other risks associated to electronic banking are job losses, lack of opportunities to

socialize and the development of a lazy society, Black et al (2001).

2.7 Empirical Evidence

Few studies have been conducted which investigated factors influencing preference to adopt

internet-banking recently. Thus, the following empirical evidence was based mainly on

developed country cases and has a limited focus on social and psychological factors.

Chiemeke et al. (2006) conducted an empirical investigation on adoption of ebanking in Nigeria.

The study identified the major inhibiting factors to Internet banking adoption in Nigeria such as,

insecurity, inadequate operational facilities including telecommunications facilities and

electricity supply, and made recommendations on how Nigeria banks can narrow the digital

divide. Furthermore the report revealed that Internet banking is being offered at the basic level of

interactivity with most of the banks having mainly information sites and providing little Internet

transactional services.

Similarly, Agboola (2006) investigated electronic payment systems and tele-banking services in

Nigeria. The findings revealed that there has been a very modest move away from cash.

Payments are now being automated and absolute volumes of cash transactions have declined.

The result of the study revealed that tele-banking is capable of broadening the customer

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relationship, retain customer’s loyalty and enable banks to gain commanding height of market

share if their attendant problems such as, ineffectiveness of telecommunications services,

epileptic supply of power, high cost, fear of fraudulent practices and lack of facilities necessary

for their operation were taken care of.

Ayo (2006) investigated the prospects of e-commerce based on ability, motivation and

opportunities (AMO) model and observed that virtually all companies have online presence. The

paper reports the motivation and opportunities for e-commerce as low based on lack of e-

Payment infrastructure and access to ICT facilities.

Also, in an empirical assessment of customer acceptance of internet banking carried out in

Germany, by Tiwari (2006) his research found out that:

1) The highest internet banking users are top management, followed by self employed,

salaried class, students and others. Government employees were found not to patronize

mobile banking.

2) The most favored reason for carrying out internet banking is ubiquity, next is overview of

bank account, followed by immediacy.

3) The highest fear of customers about internet banking is that of insecurity, next is cost,

and uncomfortably telecommunications services, epileptic supply of power, high cost,

fear of fraudulent practices and lack of facilities necessary for their operation were taken

care of.

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Vijayan (2003) also conducted a case study on the service quality of Internet banking in

Malaysia and found that two of the top five Malaysian banks have a four star rating out of a

maximum five star rating. The remaining three top banks have a three star rating based on a 40-

item evaluation instrument. Awamleh et al (2003) surveyed Jordanian banks and find limited

evidence of web usage at the intermediate level while the basic level use is dominant. They also

found that the banks in Jordan are not fully utilizing concepts and applications of web banking.

In his case study, Wu et al (2004) evaluated the web site usability of Internet Banking in Taiwan.

The study indicated that there is a gap between the user expectation and actual usability of Web

sites. Moreover, the results show that old banks are more experienced than new banks and

private banks are more competitive than government-owned banks to survive in a competing

market.

Another researcher is Molla (2004) who empirically evaluated the factors that affect Omani

consumers' adoption and use of Internet banking. The findings of the study indicated that Internet

banking in Oman is in its early stages of development. In addition, Omani customers appear to

make their Internet banking adoption decision based on its compatibility, usefulness and ease of

use.

Similarly, Singh (2004) presented a case study on the current state of Internet Banking in India

and also identified key differences between internet banks and non-internet banks with special

reference to commercial banks operating in India. The study undertook a survey of websites of

the banks. Based on the results, Internet banking is not a significant determinant in explaining

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the profitability for all banks. There is also no statistical significant difference between the

internet and non-internet banks with respect to accounting efficiency and credit quality.

In addition, Eriksson et al. (2004) studied technology acceptance of Internet banking in Estonia.

The findings of this study point to the perceived usefulness of Internet banking. Cheng et al

(2006) investigate the perception of Internet banking in Hong Kong. They provide several keys

into determinants of Internet banking usage. They find perceived usefulness is a major factor

determinant of customer’s intentions for Internet banking usage.

Sinti (2006) moreover examined the determinant structure of customer attitude on adoption of

Internet banking in Malaysia. In his empirical research he indicated that the “attitudinal factors”

play a significant role in Internet banking adoption. In addition, Internet banking adoption can

predict by behavioral tendency and webpage features. According to this study, easy-to-use

technologies and trial ability should be put in place in order to increase adoption.

Also in an evaluation survey, Sayar (2007) compared the Internet banking services in the UK and

Turkey. The study revealed that Turkish banks offer a wider range of web services compared to

British banks, despite the fact that the UK has a more favorable environment for Internet banking

in terms of its banking sector and technological infrastructure. There is a conceptual difference

regarding the security issues between British and Turkish banks. Turkish banks use technology

to avoid cases of fraud; where as the British banks prefer more conventional methods.

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White (2001) examined customer orientations and usage of financial distribution channels in the

Australian financial industry, found that more recently most financial institutions, faced with

competitive pressure after the introduction of deregulation in 1983, have rethought their

strategies to take full advantage of IT. Rafiu (2007) opines that the challenge to expand and

maintain banking market share has influenced many banks to invest more in making better use of

the Internet. The emergence of e-banking had made many banks rethink their IT strategies in

competitive markets. This findings suggest that the banks that fail to respond to the emergence of

e-banking in the market are likely to lose customers and that the cost of offering e-banking

services is less than the cost of keeping branch banking.

This notion was also confirmed in a study conducted by Jasimuddin (2004) examined the role of

e-banking in Saudi Arabia. He indicated that the majority of Saudi banks had taken advantage of

Internet technology to establish web sites but few offered ebanking services. He suggested that if

the Saudi Arabian banking industry wished to be successful in the global economy it would need

to integrate Internet technology into its banking strategy.

In his study, Jayawardhena (2000) explored e-banking as a new delivery channel arguing that e-

banking may help to overcome the inherent disadvantages of traditional banks; it is very clear

that if e-banking conducted successfully it leads to big volume of transactions. Further, Young

(1997) argue that the internet may be exploited as a new delivery channel by the financial

services industry to completely reorganize the structure of banks. It means that conducting e-

banking in Iran leads more usage of ATM in Iran. The author further states that the lack of

enough information on e-banking in Iran may cause less efficiency of Iranian banks. To

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achieving high efficiency both bankers as well as Iranian legislators should introduce e-banking

services at mass level.

Similarly a research conducted by Karjaluoto et al (2002) reported that ease of use of innovative

product or service as one of the three important characteristics for adoption from the customer’s

perspective. The user friendliness of domain names as well as the navigation tools available in

the web-sites is an important determinant for ease of use.

2.8 Summary

In this chapter it was revealed that internet banking has become popular rapidly growing delivery

channel for banking services worldwide. Factors influencing adoption of Internet banking both

negative and positive were highlighted indicating the current trend analysis and key

developments. Also the benefits and concerns of internet banking to the banks and customers

were clearly indicated. The literature further revealed the risks which hinder the diffusion of

internet banking and additionally providing empirical evidence of various studies conducted by

different countries. These findings will develop a frame of reference necessary for data collection

and analysis for the study.